Don’t Cut Social Security — Lower the Retirement Age and Open Up More Jobs

Discussions of Social Security and Medicare tend to focus on the “cost” of the programs without considering the bigger picture: the many ways these programs help people and boost the larger economy. What would happen if we were to expand these valuable programs instead of cutting them?

Right now America has high unemployment overall but an especially severe youth unemployment crisis – a huge setback for an entire generation, with terrible economic effects for them and the country. At the same time, older people are clinging to jobs, waiting until their retirement benefits kick in. Plenty of them could and would happily take a rest with just a bit of help. Wouldn’t lowering the retirement age open up badly-needed jobs for younger workers?

But there’s more. Moving unemployed younger people into jobs would lower our “safety-net” costs as fewer people relied on public benefits to make ends meet reducing government spending. Getting people working also increases tax revenue and contributions to Social Security and Medicare. And getting people working also increases consumer demand, which gets more people working and increases tax revenue. So moving people into jobs attacks America’s deficit problem from both ends.

What happens to health care costs if we lower the retirement age? It’s a sad fact of life that the older people get, the more health care they need. So the oldest people in the private-insurance pool are the most expensive. This means that lowering the age of eligibility for Medicare takes the most expensive people out of the private insurance pool, reducing premium costs for everyone else. At the same time it adds relatively inexpensive people to the Medicare pool, lowering Medicare’s overall cost-per-person.

On both ends of that equation lowering the age of eligibility for Medicare to 55 helps the country’s economy. The people over 55 that move into Medicare are no longer paying health-insurance premiums, which frees up disposable income giving them more purchasing power. With relatively expensive people over 55 moved to Medicare everyone under the age of 55 would pay lower health-insurance premiums, boosting their purchasing power as well. This has a stimulus effect, boosting growth, which would in turn boost revenues and lower the deficit.

Of course many people have insufficient savings to retire even with full Social Security and Medicare. Others like their jobs and wouldn’t want to leave them. But many older workers are counting the days until they qualify for Medicare and Social Security.

Other Economic Benefits

Lowering employment and driving up wages means fewer people defaulting on student loans and mortgages.

And we should consider that the travel, hospitality and tourism industries would greatly benefit from a surge of relatively young retirees.

In other words, if a dollar “spent” on a program brings back a dollar’s worth of benefits or more somewhere else in the economy, do you really “save money” by cutting that program?

Our government’s policies are supposed to reflect things the public wants. So what do opinion polls tell us about the idea of expanding Social Security and Medicare? It’s difficult to locate polls in which the public is even asked about lowering the retirement age. However, universally negative reactions to the idea of increasing the retirement age or cutting benefits at least implies that Americans would probably favor lowering it. The following is just a sampling of polls that gather opinions on Social Security and Medicare.

January 2013, National Academy of Social Insurance, 84 percent believe current Social Security benefits do not provide enough income for retirees, and 75 percent believe we should consider raising future Social Security benefits in order to provide a more secure retirement for working Americans

The best reason to do this, of course, is that it helps people. Cruel budget cuts that tear people’s lives apart should not even be on the table. Investing in our people to increase our prosperity should be the highest priority.

None of this is to suggest that the cost to government of lowering the retirement age would be covered dollar-for-dollar by the resulting cost decreases in other programs. But it would have an overall positive social impact. Makes you think, doesn’t it?

PS: I wrote to economist James K Galbraith, who offered a caveat. He wrote,

“I would not do it permanently. It will be more effective as a strategy if you make the option more attractive for a brief window — say three years. You could then lure quite a few people who are ready to quit out of the workforce, open up jobs, and at the same time leave people who want to continue working alone.”